IZA DP No. 5124 The Economic Consequences of “Brain Drain” of the Best and Brightest: Microeconomic Evidence from Five Countries John Gibson David McKenzie August 2010 DISCUSSION PAPER SERIES Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor The Economic Consequences of “Brain Drain” of the Best and Brightest: Microeconomic Evidence from Five Countries John Gibson University of Waikato David McKenzie World Bank and IZA Discussion Paper No. 5124 August 2010 IZA P.O. Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 E-mail: [email protected] Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. 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IZA Discussion Paper No. 5124 August 2010 ABSTRACT The Economic Consequences of “Brain Drain” of the Best and Brightest: Microeconomic Evidence from Five Countries* Brain drain has long been a common concern for migrant-sending countries, particularly for small countries where high-skilled emigration rates are highest. However, while economic theory suggests a number of possible benefits, in addition to costs, from skilled emigration, the evidence base on many of these is very limited. Moreover, the lessons from case studies of benefits to China and India from skilled emigration may not be relevant to much smaller countries. This paper presents the results of innovative surveys which tracked academic high-achievers from five countries to wherever they moved in the world in order to directly measure at the micro level the channels through which high-skilled emigration affects the sending country. The results show that there are very high levels of emigration and of return migration among the very highly skilled; the income gains to the best and brightest from migrating are very large, and an order of magnitude or more greater than any other effect; there are large benefits from migration in terms of postgraduate education; most high-skilled migrants from poorer countries send remittances; but that involvement in trade and foreign direct investment is a rare occurrence. There is considerable knowledge flow from both current and return migrants about job and study opportunities abroad, but little net knowledge sharing from current migrants to home country governments or businesses. Finally, the fiscal costs vary considerably across countries, and depend on the extent to which governments rely on progressive income taxation. JEL Classification: O15, F22, J61 Keywords: brain drain, brain gain, highly skilled migration Corresponding author: David McKenzie MSN MC3-307 The World Bank 1818 H Street N.W. Washington D.C. 20433 USA E-mail: [email protected] * We thank the World Bank’s Research Support Budget, the Knowledge for Change Trust fund, the Center for Global Development, and the Migration and Remittances for Development in Africa Multi- Donor Trust Fund (TF070761) for research funding for this project; Geua Boe-Gibson, ‘Alisi Katoanga, Caroline Kouassiaman, Innovations for Poverty Action, the Micronesian Seminar, the New Zealand Ministry of Education, the New Zealand Mathematical and Chemistry Olympiad Committees, Tanorama and various alumni groups for helping put together the sample frames and contacting the individuals in our survey; Xpatulator.com for providing the cost-of-living adjustment factors; Chris Hector, Melanie Morten and Cristina Tealdi for research assistance, and seminar audiences at CGD, the Chianti Migration Conference, CReAM, UCLA and the University of Otago for helpful comments. All views are of course those of the authors alone, and do not necessarily represent those of their employers or of the collaborating organizations. 1. Introduction Two narratives drive discussions of the development impact of high-skilled migration. The first is the idea of a brain drain, whereby the departure of doctors, teachers, engineers, scientists, and other highly skilled workers decimates the human capital and fiscal revenues of sending countries (Bhagwati and Hamada, 1974). Such fears lead to calls for policies to restrict the flow of highly skilled workers, such as demands that developed countries stop recruiting doctors from developing nations, and efforts by developing nations to restrict the ease of their highly skilled individuals migrating.1 Contrasting with this is the view of a highly educated diaspora as a potent force for developing the local economy through remittances, trade, foreign direct investment (FDI), and knowledge transfers, with the experience of India and China in setting up technology firms as a result of diaspora working in Silicon Valley a prominent example (Saxeenian, 2002). Economists have also emphasized that the possibility of migrating may spur human capital accumulation, potentially leading to a net increase in the education levels of those in the home country.2 However, what is sorely lacking in such discussions is empirical evidence as to what the experience has been in practice for countries facing high rates of high-skilled emigration. Recent large-scale data efforts have provided a much-improved evidence base with which to talk about the scale of high-skilled emigration (e.g. Docquier and Marfouk, 2004; Beine et al. 2007), and in Gibson and McKenzie (2010) we have used data from three island countries to investigate the determinants of migration and return migration decisions by the highly skilled. Yet quantitative evidence as to the extent to which the many theoretical channels operate in practice in determining the consequences of high-skilled emigration is almost non-existent. In particular, it is unclear whether it is common for highly-skilled emigrants from high migration countries to actually be engaging in knowledge transfers, trade, and FDI, or whether the experience of Chinese and Indian IT companies is so famous because it is the exception, not the rule. We also do not have empirical evidence as to what the size of the fiscal effect is, and how the magnitudes 1 For example, in 2009 the Algerian Government said it would restrict study abroad scholarships granted to high achievers in baccalaureate examinations in an effort to stem a worsening brain drain, and Uganda began requiring doctors who wish to pursue further studies abroad to make a written commitment to return to Uganda. On the receiving side, the World Federation of Public Health Associations adopted a resolution in 2005 supporting ethical restrictions on international recruitment of health professionals from developing countries. 2 See Mountford (1997), Vidal (1998), Stark et al. (1997) and Schiff (2006) for this theoretical debate, Beine et al. (2008) for cross-country empirical evidence, and Chand and Clemens (2008) for a case study in Fiji. Kapur and McHale (2005) provide a nice recent review of the literature. 2 of these different channels compare to the size of the gains experienced by the migrants themselves.3 The purpose of this paper is to provide the first systematic empirical evidence on these issues. To do this we chose five countries which represent a range of the types of countries experiencing very high rates of high-skilled emigration. Tonga, and the Federated States of Micronesia (hereafter Micronesia), are small island states, which Beine et al. (2008) show to have the highest “brain drain” rates in the world.4 Papua New Guinea is a larger developing country in the Pacific with much lower overall levels of migration, but also a high brain drain rate. Ghana was chosen as one of the best-known examples of a sub-Saharan African country grappling with high brain drain, and New Zealand as the OECD country with the highest brain drain rate. If we care about brain drain, it is precisely the experiences of countries like these, which have the highest rates, which should be informative, rather than the experiences of India and China, for which fewer than 5 percent of the tertiary educated population are living abroad. In each of these countries we pursue an innovative survey methodology, which consists of identifying a well-defined target sample frame of interest – individuals who were the top academic performers in the country at the time of their high school graduation – and then tracking down these individuals wherever they currently live in the world and surveying them. Altogether this involved collecting data on individuals living in 45 different countries, and asking them detailed questions about their migration and educational histories, and the channels through which they interact with their